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Empirical evidence suggests that consumers tend to spend all their current disposable income immediately.is it irrational? Explain
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- Empirical evidence suggests that many consumers tend to spend all of their current disposable income immediately. Is this irrational?Empirical evidence suggests that consumers tend to spend all their current disposable income immediately. Is this irrational? ExplainEmpirical evidence suggest that many consumers tend to spend all of their current disposable income immediately. Is this irrational? Discuss
- Which of the following two effects of a decrease in the tax rate on saving would raise savings? a. the income effect and the substitution effect b. the income effect but not the substitution effect c. the substitution effect but not the income effect d. neither the substitution effect nor the income effectConsider two savings accounts that pay the same interest rate. One account lets you take your money out on demand. The second requires that you give 30-day advance notification before withdrawals. Which account would you prefer? Why? Can you imagine a person who might make the opposite choice? What do these choices say about the theory of the consumption function?For each of the following events, consider how you might react. What things might you consume more or less of? Would you work more or less? Would you increase or decrease your saving? Are your responses consistent with the discussion of household behavior in this chapter? a. You have a very close friend who lives in another city, a 3-hour bus ride away. The price of a round-trip ticket rises from $20 to $45. b. Tuition at your college is cut 25 percent. c. You receive an award that pays you $300 per month for the next 5 years. d. Interest rates rise dramatically, and savings accounts are now paying 10% interest annually. e. The price of food doubles. (If you are on a meal plan, assume that your board charges double.) f. A new business opens up nearby offering part-time jobs at $20 per hour.
- What happens to consumption if the student is constrained for somereason and cannot borrow today?If consumers decide to increase saving, then C decreases, r decreases, I increases, and Y:Suppose people can consume the income they earn or save and invest it at rate ?. If we tax wealth at a rate greater than ?, how are people likely to adjust their rate of savings?